If you’ve got bad credit, getting financing for a new car can seem like an uphill battle. Car loans with bad credit aren’t impossible to get: you just have to be a little savvier about the application process. You also might end up paying a slightly higher interest rate on the loan. At Ride Approval in Alberta, Canada, we can help you find a loan that will fit into your budget regardless of what your credit history is. Best of all, the loan we find you can actually help rebuild your credit history and put you on track for a more secure financial future.
8 Steps to Getting Car Loans With Bad Credit
Most of us have a credit history that could use some shoring up. Who hasn’t missed a payment or two over the years? But that shouldn’t keep you from purchasing a vehicle. Here are some strategies for successfully landing a car loan, even if you have a blemished credit record.
1. Work on Your Credit Score
Whether you’re thinking about buying a vehicle in six months or six years, improving your credit score is probably the single most important step you can take to ensure that you’ll get good financing. Your credit score is essentially a measure of how creditworthy you are. It’s based on your current level of debt as well as your debt repayment history. Credit scores range from 300 to 850, and most banks like to see a credit score of 620 or more from auto loan applicants.
If you’re planning to buy a car, it’s a good idea to check your credit score and make sure inaccurate information isn’t weighing it down. If it’s on the low side, work on paying down some of your existing debts and make a point of paying all of your bills on time. Even if you improve your credit score just a little bit, it can make a huge difference in your ability to get a favorable auto loan.
2. Stick to a Budget
It’s easy to get caught up in the excitement of shopping for a new car. But before you get your heart set on a particular vehicle, look at your monthly budget and decide what you can realistically afford to spend. Lenders may deny your loan application if you’re borrowing more than what seems appropriate for your current income and debt levels. And if you have a poor credit history, lenders will be especially cautious if you ask to borrow an amount that seems excessive. So before you head out to look at cars, set a budget for yourself and commit to sticking to it.
3. Don’t Overpay for the Car
Because the amount you’re looking to borrow can influence whether or not your loan application is approved, it’s also important to negotiate carefully when you buy a car. Know the Kelley Blue Book value of the car you’re interested in and prepare to make a fair offer. By not overpaying for your vehicle, you’ll be able to keep the size of your loan in check. Haggling over a car price isn’t something most consumers are comfortable doing. If you have a friend or family member who’s good at negotiating, bring him or her along for support and assistance.
4. Line Up a Co-Signer
Having a co-signer–someone who can assume responsibility for your loan if you aren’t able to keep up the payments–makes it easier to get car loans with bad credit. Your co-signer could be a friend or a relative, but the key is that he or she should have a better credit score than you. Bringing on a co-signer can be a big boost to your effort to land a good quality and reasonably priced loan, but you’ll want to select your co-signer wisely. You’ll also want to be sure that you really can repay the loan. If you default, you’ll leave your co-signer on the hook for your debts, and your relationship with that individual will be tarnished.
5. Make a Good Down Payment
If you can put a down payment towards the purchase of your car, you’ll likely get a better deal all around. Lenders will be more likely to work with your poor credit history, and you’ll probably pay a lower monthly interest rate and get better terms on the loan overall. Not everyone can postpone a vehicle purchase, but if it’s possible to delay for a few months while you save up more of a down payment, you’ll be in a better position to apply for a loan. A 20% down payment is usually advisable. If a down payment of that size is not possible, consider 10% to be the absolute minimum.
If you’ll be trading in a vehicle, that trade-in may also count toward your down payment. You could also sell your old car yourself and put those funds toward your down payment.
6. Look for the Best Terms
When you’re shopping around for a vehicle, it’s easy to be enticed by a low monthly payment, but that’s not the figure you should be most concerned with. If you have bad credit, you’re more likely to end up with a loan that carries a high APR, or a high annual percentage rate. It’s the APR that you should be focused on, because a high APR can significantly elevate the total amount you end up paying for a car. If you have poor credit, but you want a reasonably priced loan, the APR is the figure you should be focused on.
7. Check Out Different Lenders
It’s smart to shop around for a lender. Not every lender evaluates risk in the same way, so you may find a more favorable loan if you keep looking. The key is not to drag the process out too long because once you submit a loan application, that lender will check your credit. When queries are made about your credit, the credit bureaus will sometimes lower your credit score because they realize you may be about to take on more debt. It’s OK to submit multiple loan applications at once, but don’t let the process drag on for more than 14 days, or your credit score could dip in the process.
8. Consider a Shorter Loan
Longer loans are sometimes more appealing to consumers because if you spread out the amount you want to borrow over a longer period of time, the monthly payments are smaller and feel a little more manageable. But banks sometimes view longer loans as riskier, and they often charge higher interest rates on them as a result. If your monthly budget can accommodate the slightly higher payments associated with a shorter loan, it may end up being a better deal for you.
Let Us Do the Work for You
Are you ready to purchase your next vehicle? Could you use a little help with the loan process? We will quickly process your application and work with lenders to get you approved for a loan with the best possible rate. We can even help customers get car loans with bad credit. In fact, our loans can help you begin the process of rebuilding your credit. Visit Ride Approval today and get started!